1. FIN3013
Lab #7

2. Questions?
From Assignment #6

3. UTSA College of Business
Payback Period
amount of time required for an investment to generate cash flows sufficient to recover its initial cost
What is the payback period of the following set of cash flows?
Year 0 -$25,000
Year ,000
Year ,000
Year ,000
Year ,000
UTSA College of Business
FIN3013Lab

4. Net Present Value (NPV)
Difference between present value of an investment’s cash inflows and cash outflows
What is the NPV of the following set of cash flows if the discount rate is 8%?
Year 0 -$25,000
Year ,000
Year ,000
Year ,000
Year ,000
What is the NPV if the discount rate is 11%?
UTSA College of Business
FIN3013Lab

5. Internal Rate of Return (IRR)
Discount rate that makes the NPV of an investment zero
What is the IRR of the following set of cash flows?
Year 0 -$25,000
Year ,000
Year ,000
Year ,000
Year ,000
UTSA College of Business
FIN3013Lab

6. Calculating Operating Cash Flow
La Cantera Manufacturing has projected an increased sales volume of $14,450 from a proposed expansion project. Variable costs run 70 percent of sales. The depreciation expense will be $800, and the tax rate is 34%. What is the operating cash flow?
UTSA College of Business
FIN3013Lab

7. UTSA College of Business
Your company is considering a new project with the following characteristics:
Initial cost = $500,000
Five-year life, no salvage value, straight-line depreciation
Required return = 16%
Tax rate = 34%
Price per unit = $3,000
Variable cost per unit = $1900
Fixed costs = $250,000 per year
No net working capital is required
UTSA College of Business
FIN3013Lab

8. UTSA College of Business
Scenario Analysis
You think unit sales, price, variable cost, and fixed cost projections are accurate to within 10%.
What are the upper and lower bonds for these projections?
What is the base-case NPV?
What is the best-case scenario NPV?
What is the worst-case scenario NPV?
UTSA College of Business
FIN3013Lab

9. UTSA College of Business
Lab for next week
Assignment #7 due
Quiz #4 will cover NPV calculation, IRR calculation, and OCF calculation
UTSA College of Business
FIN3013Lab

10. UTSA College of Business
Quiz #3
UTSA College of Business
FIN3013Lab